The Big 3 is one of the names given to the three largest strategy consulting firms by revenue; McKinsey, Bain & company and Boston Consulting Group (BCG). They are also referred to as MBB. The big four consists of the four largest accounting firms by revenue; PwC, Deloitte, EY and KPMG.
The term big three stems from the more common big four. Both are groups of global professional services firms and over the years they have grown to compete more for work.
This article covers the two groups and explains the differences between them.
1) Who are the Big 3?
The Big 3 consists of McKinsey, Bain and BCG. They are each other's biggest competitors and have competed for customers for decades.
McKinsey was founded in 1926 and is one of the oldest consulting firms in existence. McKinsey made a concerted effort to only work with CEO’s and specifically CEO’s that they believed would follow their advice.
Today they work with senior executives and governments all over the world to overcome their biggest challenges.
They are credited with recruiting and developing some of the top business leaders in the world and have earned the nickname “The CEO Factory” as top executives from companies such as Facebook and Google have come from McKinsey.
Bain & Company
Bain was founded by Bill Bain and a group of BCG executives after a fallout with the incumbent BCG CEO, Bruce Henderson. Bill Bain and his team had generated more than 50% of BCG’s annual revenues and after disagreeing with a number of Bruce Henderson’s management decisions they resigned and started their own consulting firm, taking many BCG clients with them.
The firm grew rapidly and began to focus on business turnaround strategy, working closely with private equity investors (including their own spin off, Bain Capital). Today private equity makes up a large proportion of Bain’s annual revenues.
Revenue: $8bn +
The Boston Consulting Group was founded in 1963 initially as the consulting arm of The Boston Safe Deposit and Trust Company in order to provide strategic advice to the bank's clients.
Eventually the employees purchased full ownership of the consulting practice and became BCG as it is known today. BCG are credited with creating some of the consulting concepts still used today, the most famous being the BCG matrix that is used to identify the best allocation of cash for corporates.
2) Who are the Big 4?
The Big 4 consists of PwC, Deloitte, EY and KPMG. They are historically accounting firms and have broadened into other professional services but there is little difference between each of them.
PwC was formed in 1998 by the merger of two accounting firms with history dating back to the 19th century; Coopers & Lybrand and Price Waterhouse.
Since the merger, PwC has expanded from its accountancy roots into other professional services including consulting, law and transaction advisory and works on more transactions (acquisitions, mergers and financing) than any other company in the world.
Deloitte was originally founded in London in 1845 but grew via mergers and acquisitions later in the 20th century with other accounting firms such as Haskins & Sells, Touche Ross and Arthur Andersen.
The firm offers a spectrum of professional services to its clients from Risk Assurance through to Strategy consulting. They often sponsor major sporting events and sponsored the summer olympics in 2012.
EY is the result of a number of mergers between UK and US accounting firms over the last century. The key three mergers were between Whinney, Smith & Whinney (UK), Ernst & Ernst (US) and Arthur Young & Co. (US). These mergers resulted in a new company named Ernst & Young.
Notably, Ernst and Young planned to merge with rival KPMG in 1997 but the deal fell through due to antitrust issues, client opposition and cost. The company rebranded as EY in 2013 and also acquired Parthenon consulting to expand their consulting practice.
KPMG has roots in the Netherlands, United Kingdom and United States. Starting in 1815, the company grew via a number of mergers and acquisitions but it was in 1979 when the first signs of KPMG appeared when three firms merged; Klynveld Kraayenhof & Co. (NL), McLintock Main LaFrentz (UK / US) and Deutsche Treuhandgesellschaft (DE) formed KMG (Klynveld Main Goerdeler).
Then in 1987 the first ‘mega merger’ of accounting firms happened when KMG merged with Peat Marwick to form KPMG.
KPMG divested its legal disputes and consulting practices. It has since built these practices back up in a similar fashion to the other big four firms and offers a full range of professional services.
3) What the Big 3 do
The big three consulting firms all offer the same services to their clients and have competed against one another for decades.
They are first and foremost strategy consultants. Strategy consultants work with senior level executives on their most important challenges. This is because they have knowledge of how other competitors have approached the challenge, can devote 100% of their time to the problem and will consider every possibility.
Working at one of the Big 3 consultants is considered to be one of the most lucrative and reputationally beneficial career moves you can make. This is because they are working with companies and governments at the highest level and demand a lot of their staff to produce quality results.
The type of work that the Big 3 work on are cost reduction programmes, operational efficiency, market entry and new product launches. All of these are unique one-off problems for a business but all are focused on increasing profits and revenues.
4) What the Big 4 do
The Big 4 are all accounting firms in origin but have expanded into other areas in recent years. They are best known for their audit work which is required for companies over a certain size in order to verify their financial statements and provide assurances to investors and tax authorities that the company is complying with their obligations.
In the early 2000’s the Big 4 expanded their services into other professional services such as consulting and law but following controversy over the independence of firms providing advisory services to clients they audited PwC, EY and KPMG all divested these services. Deloitte were the only firm to retain their consulting practice.
However since 2010, consulting has been the primary driver of growth for these firms. They all now offer audit, tax, risk assurance, consulting and transaction services to their clients. For PwC, the biggest tax advisor in the world, consulting now generates as much revenue as their tax practice.
EY, Deloitte and PwC have also all acquired strategy consulting firms meaning that they now compete directly with the Big 3.
5) Key differences and similarities
Heritage - The Big 4’s roots all lie in over a century of accounting whilst management consulting became a formal practice in the 1920’s
Size - The Big 4 have used mergers and acquisitions to grow to up to $50bn in revenue and 300,000 employees compared with the largest of the Big 3, McKinsey, that has annual revenues of c.$10bn and 27,000 employees
Services - The Big 4 offer a full range of professional services from tax through to consulting whereas the Big 3 focus purely on consulting services.
Strategy consulting - whilst there has been some level of competition between the Big 3 and Big 4 for over 20 years it was when EY, Deloitte and PwC all acquired strategy consulting firms (some of the Big 3’s competitors) that they began to offer the same services and compete more often for work.
Clients - The Big 3 and Big 4 all work for many of the same clients. The most frequent purchasers of professional services are large private companies, governments and public bodies. Many of the Big 3 and 4 will be working for the same client at the same time on different projects.
Corporate structure - Both groups have similar corporate structures and hence career paths and organizational models. They are partnership firms whereby each partner is responsible for winning work and takes home a share of the profits at the end of the year.